In the modern business world, most firms need to borrow money at some stage. Almost all types of businesses experience cashflow issues. Sometimes, this is because business is slow, but at other times the cashflow issues occur at the same point each year due to the nature of the business.
This means that, at some stage, most firms need a cash injection, and so have to seek finance. Until fairly recently, the majority of firms turned directly to a bank or other financial institution when they needed a loan. Today, they are just as likely to seek finance through an asset finance broker. The reason for this change is that many of these traditional financial institutions have become more reluctant to lend, which has forced all kinds of firms to seek loans from alternative sources. Many have ended up speaking to an asset finance broker, in the process discovering, almost by accident, a great way to borrow money.
Any firm can potentially borrow against its assets
Most firms have some kind of asset that they can borrow against. Therefore, this form of borrowing is available for practically any kind of firm to use. The loan is secured against the asset, so a poor credit history is not a barrier for firms that want to borrow money in this way. All that’s required is that a business can prove it actually owns the asset.
Assets to be borrowed against
In the past, it was only possible to use property as collateral for an asset based loan. Today, an asset finance firm will quite happily lend money to companies that do not actually own any property. These days, it is possible to secure a loan using raw materials, finished products or plant and machinery as security.
In some situations, it is also possible to borrow money on the strength of confirmed orders. This form of asset finance is known as trade finance. It can be used to help a manufacturing firm come up with the cash it needs when buying the raw materials to complete and fill that order.
How much can be borrowed in this way?
The amount that can be borrowed against assets varies considerably. Property is still the easiest asset to borrow against. This is because it is easy to prove ownership and property is an asset that is relatively simple to value. Therefore, it is possible to borrow up to 60% of the value of the property.
Establishing ownership and the true market value of raw materials and finished products is not quite so easy. As a result, companies can borrow less against these assets. Typically, working with an asset finance broker, a firm can borrow up to 30% of the market value of their raw materials, or 50% of the value of their finished products.
If you are interested in using asset finance to provide your business with the cash it needs to grow and expand, speak to our team at Invoice Finance Scotland. Our experienced professionals can quickly establish which assets you could potentially borrow against, and tell you how much you could borrow.